1/21/19: Mark's "Market Talk" Blog

Markets react to a trade statement, shut down enters 4th week, ASF spreads in China

Thursday an undersecretary in the treasury department made a statement suggesting that the US should lower the tariffs we have on China as a good will jester ahead of scheduled talks later this month. This caught the grain market off guard in the middle of the trade day and beans shot up 15 cents or more immediately. They closed 13 higher for the day. Friday morning they continued on the higher note as there was talk the Chinese were working on a long range plan to ramp up buying American products in order to reduce the trade imbalance. So we ended last week on a positive note and head into a 4 day trading week. Ever since this trade war started it has been sell the rumor - buy the fact type of trading and this may be a similar case. However there appears to be signs from both sides that this has gone on long enough and it’s time to settle it. Solving the trade dispute is only the start in correcting bean prices as we have a record carryout to work thru. We have become the world’s grain bin. Countries such as Brazil and Argentina do not have the storage facilities to store grain from one harvest to the next. On the other hand we have a huge amount of storage space both commercial and private. This in turn sends buyers to South America where they will cut their prices to where they have to be in order to move grain out. The US gets stuck with the carryout and the costs that go along with it which tends to make us the residual seller. So we not only need to solve the trade war we need Mother Nature to help us reduce the southern production with some poor weather.  Corn spent last week moving within its tight trading range and ended the week about 4 cents higher. We need back to back closes above 3.85 in the March contract to say we are breaking out higher. We just can’t seem to get there. We still lack government reports as the shut down enters the 4th week. We appear to be exporting a lot of corn but we really don’t know how much. Ethanol production increased some last week as margins improved a bit. Hog production is record high so that helps create corn demand. Chinese officials continue to combat their African swine fever outbreak. Some estimate they have lost as many as 20 percent of their hogs which would be a huge loss. Hopefully they will start importing more US pork to cover the loss. Meanwhile we have to hope they can keep this terrible disease out of the United States. The only cure today is to eradicate all of the affected animals.

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